Türkiye’s export market conditions improved modestly in May, supported by signs of recovery in the Middle East despite continued weakness across several key European economies, a survey showed on Monday.

The Türkiye Export Climate Index, compiled by the Istanbul Chamber of Industry (ISO) and S&P Global to measure business conditions in the main export destinations of Turkish manufacturers, rose to 50.3 in May from 50.2 in April.

The reading returned to its March level and marked the 29th consecutive month of improvement in export market conditions. A figure above 50 indicates strengthening demand conditions, while a reading below that threshold signals deterioration.

Weakness in Europe

However, several major European markets continued to show signs of weakness.

Output declined further in Germany and France, the two largest economies in the eurozone, while France recorded its sharpest contraction since January 2024.

Economic activity in the United Kingdom also returned to decline in May.

Germany, France and the U.K. together account for roughly 19% of Türkiye’s manufacturing exports.

Romania and Russia also recorded contractions, while Italy and Spain posted only marginal growth.

In the United States, economic activity continued to expand for a 40th consecutive month, although growth eased compared with April.

Andrew Harker, economics director at S&P Global Market Intelligence, said generally stable demand conditions in export markets overshadowed the differing trends emerging in key regional markets.

Harker said signs of weakness became more evident in Europe, noting that the region currently presents a weak growth outlook, as many economies are struggling with rapid price increases.

Signs of recovery in Middle East

According to the survey, the Middle East showed stronger momentum following disruptions caused by the Iran war that erupted in late February.

Non-oil business activity in the United Arab Emirates (UAE) expanded at its fastest pace in three months, while growth accelerated in Saudi Arabia.

Declines in output across Egypt, Kuwait, Lebanon and Qatar were less pronounced than in the previous survey period.

S&P Global’s Harker said Middle Eastern economies showed a more positive picture and signs of recovery following the Iran war.

He said geopolitical challenges are likely to continue limiting international demand, at least in the near term.

Among all economies covered by the Purchasing Managers’ Index (PMI) data, Singapore recorded the strongest increase in output in May, closely followed by India.

Kenya registered the sharpest decline in economic activity, largely due to rising costs, although the country accounts for only a small share of Türkiye’s manufacturing exports.

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The global airline industry cut its 2026 profit forecast sharply on Sunday, by nearly a half compared to earlier estimates, citing conflict in the Middle East that has driven up fuel costs, disrupted key air ‌corridors and exposed the fragility of a sector operating on thin margins.

The International Air Transport Association (IATA), which represents more than 370 airlines accounting for about 85% of global air traffic, said in its annual report that it now expects the industry to post a combined net profit of $23 billion in 2026, well below a previous projection of ​about $41 billion and down from $45 billion in 2025.

The downgrade underscores airlines’ exposure to geopolitical shocks and fuel volatility, even as passenger ​demand remains resilient, planes are flying fuller and revenues are set to rise to more than $1.1 trillion.

“There are two ⁠major factors: one is the significant increase in jet fuel prices, which has gone way higher than I think anybody would have expected, and ​then the disruption to the airlines in the Gulf region, so that combination has led us to reduce the forecast,” IATA Director General Willie Walsh ​told Reuters at the group’s annual meeting in Rio de Janeiro.

Walsh said he expects some smaller airlines to go bankrupt or be taken over by bigger carriers this year and next as higher fuel costs bite. U.S. low-cost carrier Spirit Airlines shut down last month, the first airline casualty of the Iran war.

Airlines are also expected to cut ​unprofitable routes to protect margins, while fares, which have surged since the start of the Iran war, are unlikely to fall soon, Walsh said.

“In ​an environment where demand remains pretty robust, but capacity comes down, that will likely lead to a situation where fares will remain elevated,” Walsh said.

Fuel cost shock wipes out higher revenues

The Middle East conflict, triggered by U.S. and Israeli airstrikes on Iran, has forced airlines to reroute flights around closed or restricted airspace, adding hours to some journeys, increasing fuel burn and straining already tight capacity.

At the same time, oil prices have surged on fears of supply disruption, pushing jet fuel prices sharply higher and widening refinery margins, leaving airlines facing a steep jump in their costs.

Gulf airlines such as Emirates, Qatar Airways ​and Etihad Airways face the greatest ​operational uncertainty after a near-complete ⁠shutdown of regional airspace at the start of the conflict.

Walsh said most regions should remain profitable, though at lower levels, while Middle East airlines are likely to slip into the red due to the conflict and weaker ​demand.

IATA expects airlines’ fuel bill to surge to about $350 billion this year from roughly $252 billion in 2025, with ​fuel accounting for ⁠nearly a third of operating costs.

That is eroding profitability per passenger, with airlines now expected to earn about $4.50 per passenger, roughly half last year’s level.

On the upside, IATA expects industry revenues to rise 9.4% to around $1.16 trillion this year, driven by steady travel demand, higher fares, and growing income from extras such ⁠as seat ​upgrades and onboard services.

Aircraft shortages are also squeezing the sector. Delivery delays at Boeing and ​Airbus are forcing airlines to keep older, less fuel-efficient planes in service for longer, raising maintenance bills and blunting efforts to improve margins, Walsh said.

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Swiss citizens head to the polls on June 14 to vote on whether the country’s population should be limited to 10 million, in a referendum some compare to a “Swiss Brexit” and that many businesses fear could hurt the economy if approved.

Supporters of the cap, championed by the right-wing Swiss People’s Party (SVP), say the expanding population is testing local infrastructure, roads and public transport to the limits, as well as ⁠driving up rents and crime.

Companies and employers, however, worry a “yes” vote would limit ⁠Switzerland’s access to skilled labor and damage relations with the European Union, its biggest export market.

“As a Swiss citizen, it concerns me very much for the future of our country and its prosperity,” said Martin von Moos, CEO of luxury hotels Belvoir in Ruschlikon and Sedartis in Thalwil, near Zurich.

“If we ​lost all of our foreign staff, the hotel simply wouldn’t function,” he said, noting nearly half of his 115 ​staff came ⁠from outside Switzerland.

The issue has been finely balanced in recent studies, with the most recent poll showing 47% in favor and 52% against.

The Swiss population had grown to 9.1 million by the end of 2025, from 7.3 million when free movement of people between Switzerland and the European Union was introduced in 2002.

Foreigners now make up nearly 28% of the population.

“Switzerland is a small country with a limited territory, and it has experienced the highest population growth in recent years,” SVP lawmaker Yvan Pahud told Reuters.

The vote is the latest example of right-wing parties tapping into anxiety over immigration, housing and public services, seen in Britain’s 2016 vote to quit the EU and the rising popularity of parties such as France’s National Rally and AfD in Germany.

Cap could be ‘showstopper’

Business critics point to the damage they say the population cap could inflict on one of Europe’s most resilient economies.

Molecular Partners, a Zurich-based biotech company – more than half of whose roughly 120 staff are non-Swiss – said it was already tough to get the people it needed.

“I think if we said we could only hire out of the Swiss talent pool, or if we could only collaborate with the Swiss companies, ⁠it ⁠would basically be a showstopper,” said Daniel Steiner, senior vice president targeted radio therapeutics at the company.

“We may be forced to move things out of Switzerland.”

Rudolf Minsch, chief economist of business association economiesuisse, said the cap was a “populist attempt” to fix complex problems with a simplistic, artificial limit.

“It sells the illusion of a free lunch, and will not solve our housing or traffic problems,” Minsch said.

Like many European countries, Switzerland faces an aging population.

By 2055, the proportion of the Swiss population aged between 20 and 64 will decline from 60% to 56%, according to the Swiss statistics office. Meanwhile, the proportion of people aged over 65 will climb to 27%, from 21% currently.

Opponents of the cap argue many newcomers have been entrepreneurs who developed the Swiss economy, citing well-known companies such as Nestle, Swatch and ABB that were set up either wholly or partially by foreigners.

According to a 2023 study by Avenir Suisse, 39% of all company founders in Switzerland were foreigners.

Dent to growth

Referendums are a ⁠cornerstone of Swiss politics, with voters heading to the polls four times a year to decide on various national and regional issues.

Under the latest proposal, if Switzerland’s population exceeded 9.5 million – a milestone that is forecast for 2031 – the government would be required to take measures to prevent it reaching 10 million, which it is forecast to hit in 2042.

At 10 million, Bern would be required to terminate international ​accords that encourage population growth.

That includes the agreement with the EU allowing free movement of people, a condition of the complex web of Swiss accords with Brussels that ​give the country access to the European single market.

Claude Maurer, chief economist at BAK Economics, a research institute, said if Bern abandoned its bilateral accords, Swiss economic growth between 2028 and 2045 would be 7.1% lower, equivalent to a loss of 685 billion Swiss francs ($867 billion).

Growth would slow, while inflation, driven higher by ⁠wage increases, could trigger higher ‌interest rates, Maurer ‌said.

Thomas Matter, another SVP lawmaker and banker, dismissed the concerns as scaremongering.

Only one-out-of-10 immigrants were workers with sought-after skills and ⁠the rate of GDP growth per head had declined since the increase in immigration, Matter said.

“We are ‌not against immigration, but it has to be moderate and controlled so we bring in the right people,” he said.

“Before we had qualitative immigration, now we have quantitative immigration. Switzerland is still the same size as it ​was in 1848, and more and more people are ⁠living in the same space.”

Swiss corporate giants Roche, Nestle, ABB, UBS and Novartis have all criticized the cap.

“We reject the initiative,” ⁠Roche said, adding that a “yes” vote would threaten agreements with the EU and exacerbate a shortage of skilled workers. “Companies depend on access to qualified workers – especially from the EU.”

Hotelier ⁠von Moos, who is also head of ​the Swiss hotels association, said some hotels could be forced out of business, prices would rise, and it would be harder for non-European visitors to come to Switzerland.

“We call this initiative a wolf in sheep’s clothing. It’s a simple message but it hides serious consequences.”

China’s e-commerce export boom is losing momentum as the Iran war drives up jet fuel costs and dampens demand from lower-income consumers in the West, putting profits at risk for major retailers including Temu, Shein and AliExpress.

The business models, based ⁠on flying $5 dresses from Chinese factories to shoppers around the world, were already under pressure after U.S. President Donald Trump introduced tariffs and axed customs waivers on low-value parcels last year.

Soaring logistics costs stemming from ​the Middle East conflict are adding to the strain, data shows and industry insiders ​say, with ⁠shippers like DHL Express imposing hefty fuel surcharges.

China’s low-cost e-commerce exports, which have surged over the past six years, fell 10.9% in April to $9.81 billion, the fifth consecutive month of declines compared to a year ago, according to an analysis of Chinese customs data by Luxembourg-based consultancy Trade and Transport Group.

Passing on costs to consumers

Diana Qiao, a Shenzhen-based seller of women’s clothing on Temu, said she had raised her selling prices by $2 because her shipping cost per garment had increased on average by $1.

“The final burden is ultimately borne by consumers,” said Qiao, adding that the increase was needed to protect her profit margins, and sales have declined slightly, but she does not so far see a need to change her shipping arrangements.

Falling export values are an indication not just of the cost squeeze, but also that the era of ⁠hyper-growth ⁠for the large low-cost shopping platforms may be over, analysts and industry insiders say.

They are likely moving more products in bulk into warehouses to dispatch locally rather than flying everything direct from China, said Frederic Horst, Trade and Transport Group’s managing director.

“It would make sense given the air freight cost relative to the value of the product,” he said. “If you’re buying a top that is 300-400 grams you’re getting to the stage where air freight is 60% of the cost.”

Shein has been expanding its warehouse capacity in Europe, last month opening its third warehouse in Cannock, near Birmingham in Britain.

A spokesperson at AliExpress owner Alibaba told Reuters it remained focused on “maintaining value-for-money pricing for consumers and providing a ⁠stable environment for sellers and consumers despite the volatility in global transportation costs.”

Shein and Temu did not respond to questions about the effect of air freight costs on their businesses.

Platforms face weaker demand as business matures

To be sure, exports are still much higher than they were two years ​ago, and the start of 2025 was marked by significant frontloading ahead of U.S. tariffs. But returning to the growth of ​the past few years will be harder as Shein and Temu have already gained significant market share and surging petrol prices are hurting household budgets in the U.S. and Europe.

The European Union is also set ⁠to impose a 3-euro ($3.46) fee ‌on low-value ‌e-commerce parcels from July 1.

Air freight costs have an impact, but the platforms ⁠are also in a slower-growth phase and consumption overseas is decreasing because of ‌inflation, said a China-based freight forwarding executive who declined to be named because he is not authorized to speak to the media.

Air freight rates are ​likely to stay high because of jet ⁠fuel prices and will take time to fall even if the Iran conflict ends, said ⁠Judah Levine, freight platform Freightos’ head of research.

“If the costs stay very high, or even increase further, companies may switch to ⁠other modes of transport ​or hold back some of their shipments,” said Martin Habisreitinger, Hellmann Worldwide Logistics’ chief operating officer of airfreight.

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The Turkish central bank is set to convene for a key policy meeting this week, another one since the start of the U.S.-Israeli war with Iran, which has sharply lifted global oil prices, prompting a more cautious stance by the economic actors worldwide.

The Central Bank of the Republic of Türkiye (CBRT) will, June 11, decide whether to keep interest rates unchanged at the current level of 37% or instead potentially opt for a hike as recent data indicated a mild uptick in annual inflation in May, despite the monthly reading coming in less than the prior month.

In May, consumer prices increased 1.71% monthly and 32.61% annually, official data showed on Friday. That compared to 4.18% ​monthly and 32.37% annually registered in April.

The data shared by the Turkish Statistical Institute (TurkStat) revealed that although education and housing remained among the leading drivers that contributed to the annual surge in the index, transportation and food and non-alcoholic beverages also posted increases above the median.

The central bank raised its year-end interm ​inflation target to 24% from 16% last month, forecasting that the short-term inflationary effects of the Iran war would remain “pronounced,” as the war-related surge in energy prices has impacted countries that rely on energy imports.

“Although geopolitical risks and ⁠volatility in energy prices continue to exert pressure on the inflation outlook, we have limited these effects ​with the steps we have taken,” Treasury and Finance Minister Mehmet Şimşek said in a post on X, commenting on the May data.

Prior to the outbreak of the Iran war, Ankara had managed to lower inflation to the level of around 30s compared to above 80% in late 2022.

Earlier this week, Şimşek pledged that commitment to disinflation remains “firm.”

However, amid the Iran-war related pressures, which have weighed on prices in different regions, including Europe, analysts are debating whether central banks would turn to rate hikes to contain the fallout.

This week will also mark the meeting of the European Central Bank (ECB), where the bank is expected to be the first one among major global banks to raise rates amid the war. Polls point to a definite hike by a quarter percentage point, to 2.25%, as inflation in the eurozone accelerated over the past two months.

For Türkiye, economists currently expect the bank to keep rates unchanged at 37%, although a hike is not excluded.

A recent survey by financial services provider Matriks, suggested that the CBRT is most likely to keep rates on hold. Of 33 economists who provided forecasts for the June Monetary Policy Committee (MPC) meeting, 27 predicted that the weekly repo rate would remain unchanged.

Six economists, however, predicted that the policy rate could be increased by 300 basis points to 40%.

Last month, amid the latest political developments in the country, U.S. banking giant JP Morgan also said it expected the policy rate to be hiked to 40%.

Dutch banking giant ING, in a report shared following the latest inflation data, said it expects the central bank “to keep interest rates unchanged at the June MPC meeting, taking into account recent macroprudential tightening with reduced caps on lending growth.”

“Nevertheless, ongoing geopolitical uncertainties and domestic political developments may call for a more cautious approach, which could lead to an upward adjustment in the policy rate – from 37% to the current effective funding rate of around 40%,” it added.

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Türkiye’s micro export volume has grown nearly 15-fold over the past 10 years, the Trade Ministry said in a written statement on Sunday, suggesting that the global market presence of producers, entrepreneurs, and the e-export ecosystem has notably increased.

In a written statement on the report dubbed “Export Routes 2025 under the Simplified Customs Declaration,” the ministry said the report provides comprehensive data and detailed analysis of Türkiye’s development in cross-border e-commerce, highlighting the strong performance of micro exports in recent years.

Micro exports refer to small-volume, low-value international trade transactions. Designed for e-commerce and small and medium-sized enterprises (SMEs), they usually bypass traditional red tape through simplified digital declarations.

The statement said that the report includes comprehensive assessments of which products are shipped to which countries under micro export schemes, country-based consumer preferences, unit sales values of products, sectors in which Turkish sellers are strong, and product groups with development potential.

It also provides a detailed analysis of returned goods in micro export transactions, it added.

It also stated that the study examines the distribution of marketplace and non-marketplace sales, as well as the use rates of road, air, Ro-Ro, and maritime transport in micro exports.

The statement highlighted that while there has been a contraction in some markets, demand for Turkish products in certain countries has increased significantly.

“In an era where protectionist policies are gaining strength in global cross-border e-commerce, the increase in our country’s parcel volume is important as it demonstrates the adaptability of our companies to digital trade and their international competitiveness,” it further said.

“Thanks to the simplified customs declaration system, access to global markets is becoming easier, especially for small and medium-sized enterprises, women entrepreneurs, and young entrepreneurs, while Türkiye’s production capacity is becoming more visible globally through digital trade channels,” it added.

The ministry also emphasized that it would continue to strengthen the e-export ecosystem, develop trade-facilitating practices, and support entrepreneurs in expanding their global presence in the coming period.

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